Marc Guzman's West County Blog
Ok we all know how important your credit score is when it comes to borrowing money for credit cards, auto loans and home loans. But how many of you really know the benefits of preparing your credit score before you buy a home?
If you have ever bought a home, you know that it can be a very exciting and daunting process. As a home buyer you do everything to prepare paperwork for your loan officer, prepare the written offer with your Realtor, prepare inspections.. heck, you even prepare the down payment by saving for it. But how many actually take time to prepare their credit score? The answer is not many. Most buyers think saving the down payment is sufficient as long as their credit score is above 620. Well let me show you why preparing your credit score is important.
No matter where your credit score is, it is important to start working on improving that score 6 months to 1 year before buying a house. Reason for this is that it takes some time to significantly increase your score. Get together with your Realtor and loan officer, and discuss a strategy for building your credit to purchase a home in 6-12months. You may also want to enroll with a company that specializes in credit scores. So why increase your score if you can technically qualify for a home loan with 620 credit score? Here is why:
- Average score for buyers using conventional financing is 760
- Average score for buyers using conventional financing in which the loans were purchase by Fannie Mae or Freddie Mac was 755
- Only 1% of loans were offered to buyer with less than 620 credit score
- 75% of loans were offered to buyers with credit score of 740 or higher
- The difference between a 720 and 620 credit score could be 140 basis points resulting in a difference of $253/month in your payment on a $300k mortgage; HUGE savings.
It is very important to educate yourself on how credit scoring works and what you can do to increase that score. Yes, the credit score rules and algorithms used by the credit agencies are “secret” but reputable and professional credit repair/building companies can help. And when combined with a buying strategy, put together with your Realtor and loan officer, you will be prepared to buy your dream home while maximizing your savings.
